Real Estate Crash Well Underway In China; GDP Crash Will Follow

Mish recently posted a synopsis of an article about things happening in China:

  • Year-on-year sales in Q1, for all real estate, was down 14.6%.
  • Residential property sales were down 17.5%
  • Office sales were down -10.2%
  • Sales in January-February were a disaster, falling 20.9% overall, compared to the first two months of 2011, -24.7% for residential.
  • Total amount of floor space “for sale” was up 35.5%, compared to the same date last year
  • Floor space of residential units “for sale” grew 47.4%.
  • At the end of 2011, total floor space “under construction” was roughly 4.6 times the floor space sold
  • A year and a half worth of excess inventory is hidden somewhere in the pipeline
  • New starts in April fell 14.6% year-on-year and 27.0% month-on-month, for property as a whole
  • Housing starts fell -14.4% year-on-year and -23.4% month-on-month
  • Office starts fell -21.0% year-on-year in April, and -45.1% compared to March
  • Retail property starts fell -18.7% year-on-year, and -36.8% compared to March
  • Land sale revenues in April (RMB 27 billion) were down -54.7% compared to April last year
  • Foreign funding for property development was down -91.4% in March and -80.8% in April, compared to the same months last year.


Clearly a crash is underway. The above stats also show the soft-landing thesis is written on toilet paper.

Clearly a big reset is happening in China.

Michael Pettis is betting on an average GDP growth of 3 percent over the next 10 years. I’m with him on that.

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Chinese Government Determined to Let Housing Prices Fall

China’s massive real estate bust has only just begun to unravel.

In light of that, it’s interesting to see the Chinese leadership take the exact opposite view to the US government’s regarding housing prices:

China’s leaders affirmed they will stick next year with a campaign to bring down property prices even as a “very grim” global outlook threatens growth in the second-largest economy.

The nation will target “basically stable” consumer prices and “unswervingly” implement real-estate curbs, according to a statement after an annual economic planning meeting in Beijing. At the same time, officials will seek “steady and relatively fast growth,” Xinhua News Agency said.

Premier Wen Jiabao’s officials may limit the scale of monetary and fiscal easing to support growth as officials grapple with elevated house prices and local-government debt burdens after record lending in 2009 and 2010. So far, the government has cut banks’ reserve requirements, while leaving interest-rates unchanged at a three-year high.

I don’t think I’ve heard a single US politician in any position of power even hint at the idea that maybe it’s not only desirable but necessary for home prices to come down in order for any meaningful recovery to begin.

The respect for concept prices as a steering and balancing indicator for entrepreneurs and capitalists in an economic system is one of the most basic pillars for understanding the economics of voluntary action, that is free market capitalism.

It’s a bit misleading for the Chinese leadership to say they are going to “bring down” property prices. Property prices are going to come down no matter what they do, the question is just how fast.

It’s possible the the Chinese have learned from the recent attempts of the US and European governments to support or stimulate housing prices and the not so recent ones next door in Japan, and figured if prices are going to come down anyway why not take credit for falling prices and even make it look like it’s them making this happen deliberately?

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China Housing Bust – Prices in Ordos Fall by 62.5 Percent

From China Financial Daily:

Living in the edge of the Ordos storm , Ordos was beset with a different version of real estate lending Wenzhou panic . For example, local ” Jinxin Han Lin Yuan ” project , its second-hand house prices are around 10,000 yuan, while the market price now only is 3750 yuan.

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